With the price of Bitcoin increasing more than 1oo percent this year, and the price of altcoins like Ethereum and Monero even outperforming Bitcoin, 2016 was a good year for cryptocurrencies in general. Let’s have a look at how we got here!
This annual roundup will be counting down a top-10 of the most talked about cryptocurrency-related stories of the last year.
#10 The resolution of the Bitcoin experiment
The year started with former Bitcoin developer Mike Hearn dropping a bombshell in January, as he announced that he would leave the open-source Bitcoin project and had sold all of his remaining BTC. In his emotional blog post Hearn concluded that “Bitcoin had failed” and that “it had failed because the community had failed”. Censorship, hash power centralization and Bitcoin reaching the limits of its transaction capacity pushed Hearn to his decision to walk away. Hearn even referred to Satoshi Nakamoto, as he wrote “I’ve moved on to other things” in his closing paragraph. Hearn continued to work for startup R3, leading a consortium of the world’s largest financial institutions in exploring blockchain technology. Of course, it wasn’t the first time Bitcoin was declared dead, but it doesn’t often result in Bitcoin losing more than 10 percent of its value. Even so, Bitcoin recovered during the year, and Mike Hearn could have doubled his many if he hadn’t sold at this time.
#9 R3 releases Corda…
The R3 blockchain consortium, grown to an impressive collective of roughly 70 banks and financial institutions during the year, released the open-source Corda platform in November. The website Corda described corda as: “a distributed ledger platform designed to record, manage and automate legal agreements between business partners. Designed by (and for) the world’s largest financial institutions, it offers a unique response to the privacy and scalability challenges facing decentralized applications.” The platform received mixed responses, and Bitcoin Core developer Peter Todd even said the platform looked like “Bitcoin without blockchain”. Nevertheless, the release marked a milestone for distributed ledger technology in the financial sector.
#8 … and falls apart
Soon after the release of the Corda platform several members decided to depart R3. Goldman Sachs, one of the founders of the consortium, was one of the first to leave. Spanish banking group Banco Santander soon followed, and Morgan Stanley too quitted the group. According to Nick Weisfeld, Data Practice Head and Blockchain Specialist at GFT: “These departures showed that there is a real question over the value being generated by R3, and an even bigger question over their ability to commercialize.” What this will eventually mean for the biggest consortium in financial history remains to be seen.
#7 Craig Wright is(n’t) Satoshi Nakamoto
In May Craig Steven Wright revealed that he was the man behind Bitcoin’s mysterious creator Satoshi Nakamoto. Wright had already tried to so in the previous year, but this time the claim was endorsed by well-known members of the Bitcoin community. This included Bitcoin Foundation founder Jon Matonis and Bitcoin developer Gavin Andresen. The publicly provided evidence on Wright’s blog did, however, not convince the community, and the proof was quickly debunked as fake on Reddit. Wright followed up with a promise to provide further evidence that he is Satoshi Nakamoto, only to make a U-turn later on stating he no longer “had the courage” to proceed. At least he deserves credits for persistence.
#6 The DAO becomes most successful crowdfunding project in history
The Ethereum project “The DAO” was launched in April. The term DAO stands for Decentralized autonomous organization, a concept that could potentially revolutionize governance models. The DAO itself was intended as the world’s first decentralized investment fund. During the first 28 days of the project, there was a DAO token “crowdsale” to raise funds and distribute control over The DAO. Every token would give the holder voting rights and proportionate control over the digital assets held by The DAO. Boosted by the skyrocketing price of Ether The DAO managed to pass the $150 million mark in funds raised. As a result, The DAO became the most successful crowdsale in history, holding more than 14 percent of all Ether in existence at the time.
#5 The DAO success doesn’t last very long
The success of The DAO proved to be short-lived. Ethereum and The DAO token holders got the scare of a lifetime in June as a bug was found and exploited in The DAO smart contract. The attacker exploited what is called a “recursive calling vulnerability”. By calling the “split” function, and then calling the split function recursively inside of the split, it became possible to collect Ether many times over in a single transaction. The attacker used this to drain the Ether contained in The DAO into a child DAO hoping to be able to withdraw the Ether soon after. As mentioned before, The DAO held more than 14 percent of all Ether in existence at the time, making this a complete disaster for all of Ethereum.
#4 Ethereum Classic created
For Ethereum the only thing worse than the hack of The DAO was probably the way it was handled. After the attack on The DAO it was decided that the project smart contract would be dismantled. A hard fork was proposed in order to transform The DAO smart contract in one that allows all The DAO token holders to reclaim their proportional amount of Ether. A soft fork was attempted first, but an attack vector was identified soon after it was released. The soft fork was intended to freeze the funds in The DAO, so that the DAO attacker would not be able to complete splitting Ether from it. Unfortunately, the soft fork appeared to enable a Denial of Service attack which could have “slowed down mining and prevented inclusion of legitimate transactions”. The hard fork wasn’t a complete success either, as a small part of the network refused to embrace the change and continued as Ethereum Classic (ETC).
#3 Bitfinex hacked
Bitcoin exchange Bitfinex, which already had a pretty poor history of security breaches, was hacked again in July. This time the platform managed to lose almost 120,000 Bitcoin, worth around $70 million at the time. This amount instantly made it one of the biggest heists in Bitcoin’s history, as it amounted to 18% of the money stolen (650,000 Bitcoins) from defunct exchange Mt.Gox. The hack was remarkable since Bitfinex had set up multi-signature protection with its partner BitGo. The exchange was quite confident about this at the time, stating “The era of commingling customer bitcoin and all of the associated security exposures is over.” Clearly this wasn’t the case.
#2 Bitcoin scaling still deadlocked
Bitcoin’s limited block size remained the most debated subject of the year within the Bitcoin community. Some progress was made in the form of a new version of Bitcoin’s Core code which was released in October, Bitcoin version 0.13.1. The contentious version contains a patch known as Segregated Witness (Segwit). This is a backwards-compatible fix for transaction malleability, which has a side-effect of reducing transaction size. The code will, however, only activate once it gains support of 95 percent of the total network hashrate somewhere in 2017. If it fails to get sufficient support the code is set to expire in November 2017. The release Segregated Witness hardened the scaling debate and even led to ViaBTC, currently one of the larger pools in the Bitcoin network, to decide to move all of its mining operations to Bitcoin Unlimited. In a statement ViaBTC argued that the move was necessary to prevent “network suicide”, because “without growing capacity for on-chain transactions the business model of the miners who secure the bitcoin network against attacks will be destroyed”. As a result, a breakthrough with regard to scaling now looks further away than ever.
#1 The rise of Ethereum
The price of Bitcoin increased by more than 100 percent in 2016, while the number of transactions per day grew by around 50 percent over the last year resulting in Bitcoin processing roughly 275,000 transactions per day. But even though these numbers are impressive, Ethereum outperformed the number one digital currency despite its challenges, making it the best performing altcoin of all-time. Starting the year with just 8,000 transactions per day and a price of less than $1 per Ether, the smart contract platform achieved some impressive growth numbers. The number of transactions per day increased by more than 500 percent, meaning that the Ethereum network is handling roughly 45,000 transactions per day. This is more than twice the volume processed by Litecoin during its best days ever, and more than 16 percent of Bitcoin’s daily volume. Unsurprisingly, the price of Ether increased by more than 700 percent during the same time, and even so-called Bitcoin maximalists now dedicate a good part of their time writing about Ethereum. With Ethereum remaining the best available smart contract platform to date, and growing up fast, this is unlikely to change any time soon.
Up until 2016, altcoins weren’t really considered to be more than sandboxes for ambitious developers. In the long run, we may look back upon 2016, and conclude it was the year altcoins finally became serious business.
That’s it for this year. Agree or disagree? Please let us know in the comments below. Happy New Year, and we look forward to welcoming you all in 2017!
